Question 1

What are the variables on the vertical and horizontal axes of the aggregate supply and demand curve?

Accepted Answer

A)  the price level and real output 
B)  real output and employment 
C)  unemployment and the inflation rate 
D)  inflation rate and the price level 
A)  the price level and real output 
B)  real output and employment 
C)  unemployment and the inflation rate 
D)  inflation rate and the price level

Question 2

Some economists argue that at low levels of GDP (lower than the long-run level of output), a shift to the right in the aggregate-demand curve increases output without a significant increase in the price levels (without inflation), while at higher levels of output (above the long-run level), a shift in the aggregate-demand significantly increases the price level without much effect on output. How would an aggregate-supply curve look like according to this theory?

Accepted Answer

This theory describes an AS cu

Question 3

Scenario 14-1
The economy is in long-run equilibrium. Suddenly, due to improved international relations, a boom experienced by a major trading partner, and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time.
-Refer to the Scenario 14-1. Initially, which curve shifts in which direction?

Accepted Answer

A)  AD shifts right. 
B)  AD shifts left. 
C)  Short-run AS shifts right. 
D)  Short-run AS shifts left. 
A)  AD shifts right. 
B)  AD shifts left. 
C)  Short-run AS shifts right. 
D)  Short-run AS shifts left.

Question 4

Why is the long-run aggregate-supply curve vertical?

Accepted Answer

A)  because population grows slowly 
B)  because the government controls inflation 
C)  because money is neutral 
D)  because prices are stable 
A)  because population grows slowly 
B)  because the government controls inflation 
C)  because money is neutral 
D)  because prices are stable

Question 5

Suppose there was an economic contraction caused by a shift in aggregate supply. Further, suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?

Accepted Answer

A)  aggregate supply would shift to the right. 
B)  Aggregate supply would shift to the left. 
C)  Aggregate demand would shift to the right. 
D)  Aggregate demand would shift to the left. 
A)  aggregate supply would shift to the right. 
B)  Aggregate supply would shift to the left. 
C)  Aggregate demand would shift to the right. 
D)  Aggregate demand would shift to the left.

Question 6

Which government action will shift the aggregate demand left?

Accepted Answer

A)  a rise in personal income taxes 
B)  decreases in highway construction 
C)  introduction of an investment tax credit 
D)  the purchase of new Coast Guard ships 
A)  a rise in personal income taxes 
B)  decreases in highway construction 
C)  introduction of an investment tax credit 
D)  the purchase of new Coast Guard ships

Question 7

What changes are likely to happen in an economy when production costs rise?

Accepted Answer

A)  Output and prices rise. 
B)  Output rises and prices fall. 
C)  Output falls and prices rise. 
D)  Output and prices fall. 
A)  Output and prices rise. 
B)  Output rises and prices fall. 
C)  Output falls and prices rise. 
D)  Output and prices fall.

Question 8

What does the economy experience during a recession?

Accepted Answer

A)  rising employment and income 
B)  rising employment and falling income 
C)  rising income and falling employment 
D)  falling employment and income 
A)  rising employment and income 
B)  rising employment and falling income 
C)  rising income and falling employment 
D)  falling employment and income

Question 9

During World War II, output increased by a larger percentage than government expenditures.

Accepted Answer

A) True 
 B)False

Question 10

Figure 14-1  
-Refer to Figure 14-1. If the economy starts at A and moves to D, what happens to the economy in the long run?

Accepted Answer

A)  It moves to C and then to A. 
B)  It moves to B and then to A. 
C)  It moves to C. 
D)  It moves to A. 
A)  It moves to C and then to A. 
B)  It moves to B and then to A. 
C)  It moves to C. 
D)  It moves to A.

Question 11

Scenario 14-2
The economy is in long-run equilibrium. Suddenly, due to corporate scandals, a recession experienced by a major trading partner, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to the Scenario 14-2. In the long run, what does the change in price expectations caused by pessimism lead to?

Accepted Answer

A)  Long-run AS shifts left. 
B)  Long-run AS shifts right. 
C)  Short-run AS shifts right. 
D)  Short-run AS shifts left. 
A)  Long-run AS shifts left. 
B)  Long-run AS shifts right. 
C)  Short-run AS shifts right. 
D)  Short-run AS shifts left.

Question 12

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

Accepted Answer

A)  when real wealth rises 
B)  when the interest rate rises 
C)  when the dollar appreciates 
D)  when the expected price level rises 
A)  when real wealth rises 
B)  when the interest rate rises 
C)  when the dollar appreciates 
D)  when the expected price level rises

Question 13

According to the sticky-price theory, which statement is consistent with a more-than-expected rise in the price level?

Accepted Answer

A)  Some firms' prices are higher than desired, which increases their sales. 
B)  Some firms' prices are higher than desired, which depresses their sales. 
C)  Some firms' prices are lower than desired, which increases their sales. 
D)  Some firms' prices are lower than desired, which depresses their sales. 
A)  Some firms' prices are higher than desired, which increases their sales. 
B)  Some firms' prices are higher than desired, which depresses their sales. 
C)  Some firms' prices are lower than desired, which increases their sales. 
D)  Some firms' prices are lower than desired, which depresses their sales.

Question 14

Which statement is consistent with an increase in the quantity of output supplied, according to the misperceptions theory?

Accepted Answer

A)  The price level increases less than expected so that firms believe the relative price of their output has increased. 
B)  The price level increases less than expected so that firms believe the relative price of their output has decreased. 
C)  The price level increases more than expected so that firms believe the relative price of their output has increased. 
D)  The price level increases more than expected so that firms believe the relative price of their output has decreased. 
A)  The price level increases less than expected so that firms believe the relative price of their output has increased. 
B)  The price level increases less than expected so that firms believe the relative price of their output has decreased. 
C)  The price level increases more than expected so that firms believe the relative price of their output has increased. 
D)  The price level increases more than expected so that firms believe the relative price of their output has decreased.

Question 15

How does the aggregate demand and supply model reflect an increase in taxes?

Accepted Answer

A)  Consumption increases, so aggregate demand shifts right. 
B)  Consumption increases, so aggregate supply shifts right. 
C)  Consumption decreases, so aggregate demand shifts left. 
D)  Consumption decreases, so aggregate supply shifts left. 
A)  Consumption increases, so aggregate demand shifts right. 
B)  Consumption increases, so aggregate supply shifts right. 
C)  Consumption decreases, so aggregate demand shifts left. 
D)  Consumption decreases, so aggregate supply shifts left.

Question 16

Which statement best describes the effects of a fall in the price level?

Accepted Answer

A)  The real exchange rate and interest rates rise. 
B)  The real exchange rate and interest rates fall. 
C)  The real exchange rate falls, and interest rates rise. 
D)  The real exchange rate rises, and interest rates fall. 
A)  The real exchange rate and interest rates rise. 
B)  The real exchange rate and interest rates fall. 
C)  The real exchange rate falls, and interest rates rise. 
D)  The real exchange rate rises, and interest rates fall.

Question 17

What happens to sales and profit during recessions?

Accepted Answer

A)  sales and profits fall 
B)  sales and profits rise 
C)  sales rise and profits fall 
D)  profits fall and sales rise 
A)  sales and profits fall 
B)  sales and profits rise 
C)  sales rise and profits fall 
D)  profits fall and sales rise

Question 18

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen?

Accepted Answer

A)  In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same. 
B)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected. 
C)  In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
D)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
A)  In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same. 
B)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected. 
C)  In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
D)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall.

Question 19

Figure 14-1  
-Refer to Figure 14-1. Which path indicates how the economy would move to long run equilibrium?

Accepted Answer

A)  from A to B 
B)  from C to B 
C)  from D to C 
D)  From C to A 
A)  from A to B 
B)  from C to B 
C)  from D to C 
D)  From C to A

Question 20

Aggregate demand shifts to the left if the money supply decreases.

Accepted Answer

A) True 
 B)False

What are the variables on the vertical and horizontal axes of the aggregate supply and demand curve?

Why is the long-run aggregate-supply curve vertical?

Suppose there was an economic contraction caused by a shift in aggregate supply. Further, suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?

Which government action will shift the aggregate demand left?

What changes are likely to happen in an economy when production costs rise?

What does the economy experience during a recession?

During World War II, output increased by a larger percentage than government expenditures.

Figure 14-1 -Refer to Figure 14-1. If the economy starts at A and moves to D, what happens to the economy in the long run?

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

According to the sticky-price theory, which statement is consistent with a more-than-expected rise in the price level?

Which statement is consistent with an increase in the quantity of output supplied, according to the misperceptions theory?

How does the aggregate demand and supply model reflect an increase in taxes?

Which statement best describes the effects of a fall in the price level?

What happens to sales and profit during recessions?

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen?

Figure 14-1 -Refer to Figure 14-1. Which path indicates how the economy would move to long run equilibrium?

Aggregate demand shifts to the left if the money supply decreases.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 14: Aggregate Demand and Aggregate Supply

What are the variables on the vertical and horizontal axes of the aggregate supply and demand curve?

Why is the long-run aggregate-supply curve vertical?

Suppose there was an economic contraction caused by a shift in aggregate supply. Further, suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?

Which government action will shift the aggregate demand left?

What changes are likely to happen in an economy when production costs rise?

What does the economy experience during a recession?

During World War II, output increased by a larger percentage than government expenditures.

Figure 14-1 -Refer to Figure 14-1. If the economy starts at A and moves to D, what happens to the economy in the long run?

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

According to the sticky-price theory, which statement is consistent with a more-than-expected rise in the price level?

Which statement is consistent with an increase in the quantity of output supplied, according to the misperceptions theory?

How does the aggregate demand and supply model reflect an increase in taxes?

Which statement best describes the effects of a fall in the price level?

What happens to sales and profit during recessions?

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen?

Figure 14-1 -Refer to Figure 14-1. Which path indicates how the economy would move to long run equilibrium?

Aggregate demand shifts to the left if the money supply decreases.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters